Senior Associate, Kimberly Jones, discusses the recent case of Elisha v Vision and important takeaways for employers.
High Court Decision Highlights Employer Liability for Psychiatric Injury in Disciplinary Processes
Elisha v Vision Australia Limited [2024] HCA 50
In a significant employment law decision, the High Court of Australia ruled that employers may be liable for psychiatric injuries caused by poorly managed disciplinary processes. There are a few key areas of note for employers that come from this case, including highlighting the importance of fair and transparent disciplinary procedures.
The Facts
Adam Elisha was employed by Vision Australia Limited as an adaptive technology consultant and had worked for Vision Australia since 2006. Following an incident at a hotel during a work trip in March 2015, Vision Australia initiated disciplinary proceedings against him. The incident involved a noise disturbance in which it was alleged that Mr Elisha was aggressive and intimidating to the hotel manager.
Vision Australia provided Mr Elisha with a 'stand down letter' outlining allegations about the hotel incident. A disciplinary meeting was then held where Mr Elisha was not informed of other allegations being considered, which were said to involve other incidents of aggressive behaviour.
Vision Australia terminated Mr Elisha employment based partly on previous alleged aggressive behaviour that was never put to him, and he subsequently developed a major depressive disorder.
The decisions
The case was initially commenced in the Supreme Court of Victoria, where the primary judge found Vision Australia's disciplinary process was "unfair, unjust and wholly unreasonable" and described it as "nothing short of a sham and a disgrace."
While the Victorian Court of Appeal overturned this decision, the High Court found in Mr Elisha's favour, reinstating the trial judge's decision to award him $1.4 million in damages for breach of contract.
Key Issue from this case
1. Incorporation of Policies
The High Court confirmed that Vision Australia's disciplinary procedures were incorporated into Mr Elisha's employment contract through specific clauses requiring compliance with company policies. This meant that any breach of the policies by Vision Australia were also contractual breaches for which they could be liable for damages.
2. Psychiatric Injury and Contract Breach
The High Court clarified that employers can be held liable for psychiatric injuries resulting from breaches of employment contracts, particularly when the breach involves disciplinary procedures. In reaching this decision, the Court departed from the long-standing authority of Addis v Gramophone, which had established that damages for psychiatric injuries fell outside an employer's contractual obligations under an employment contract.
3. Remoteness of Damage
The Court also found that psychiatric injury was not too remote a consequence of the breach, as it was reasonably foreseeable that a seriously flawed disciplinary process could cause such harm.
Important Takeaways for Employers
It's essential for employers to clearly distinguish between contractual obligations and non-contractual workplace policies. This clarity helps prevent unintended legal consequences. Generally, it's preferable to expressly exclude policies and procedures from forming part of the employment contract. It's good practice to have employment contracts drafted and regularly reviewed by a lawyer to ensure they meet your needs and don't expose you to unnecessary risk or liability.
While policies and procedures shouldn't generally be part of an employee's contract, they are still important. We recommend implementing robust disciplinary processes to ensure employees are treated lawfully and fairly, with transparency throughout. Employees should be notified of all issues under consideration and given a genuine opportunity to respond. A record of the process should be made, which will mitigate risk should the process face scrutiny later. Where termination of employment is contemplated, seeking legal advice beforehand can help minimise risk and ensure compliance with the law.
Mishandling disciplinary processes can leave businesses exposed to substantial claims for damages, including those related to psychological harm. Disciplinary actions often carry emotional and psychological consequences, so it's important to provide appropriate support mechanisms to mitigate these impacts. Doing so not only protects employees' well-being but also reinforces a commitment to fair and responsible workplace practices.
Looking Forward
This landmark decision signals a significant development in employment law, particularly regarding employer liability for psychiatric injury. Employers must always mindful of the potential consequences of mishandling disciplinary procedures. By addressing the key areas we discussed above, employers can help safeguard their organisations while fostering a respectful and legally compliant work environment.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.